1In medium bowl, beat butter and 1/2 cup of the powdered sugar with electric mixer on medium speed 5 minutes or until light and fluffy. Beat in 1 teaspoon of the vanilla. On low speed, gradually beat in flour until blended. Shape dough into flattened round. Wrap in plastic wrap; refrigerate at least 1 hour or until firm.
2Heat oven to 350°F. Line 2 cookie sheets with cooking parchment paper. On lightly floured surface, roll dough to 1/4-inch thickness (dough will be soft). Working quickly, cut with 3-inch bone-shaped cookie cutter. On cookie sheets, place cutouts about 1 inch apart.
3Bake 10 to 12 minutes or until edges are barely golden. Cool 5 minutes; remove from cookie sheets to cooling racks. Cool completely, about 20 minutes.
4In small bowl, mix remaining 1 1/2 cups powdered sugar, remaining 3/4 teaspoon vanilla and the milk until smooth. Dip tops of cookies in glaze, letting excess drip off. Sprinkle with sparkling sugar. Place on cooling rack to harden.